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Shares of Wynn Resorts (Nasdaq: WYNN ) hit a 52-week low in early trading yesterday. Let's look at how it got here and see if clear skies or clouds are ahead.
How it got here
The last year has seen slowing momentum for Wynn Resorts operationally, and since the market had priced in so much growth, the stock has come tumbling down. During the first quarter, revenue grew a disappointing 4.2% as a decline in Las Vegas revenue offset growth in Macau. After years of growth, even the Macau numbers were a bit disappointing for investors, and the reason for the disappointment won't change for a few years.
Recently there have been two trends driving down shares. First, the company's property on the Macau Peninsula is underperforming rivals Las Vegas Sands (NYSE: LVS ) and Melco Crown (Nasdaq: MPEL ) on the Cotai Strip. Wynn and MGM Resorts (NYSE: MGM ) are invested in the older part of Macau and now that more resorts are open on Cotai the gaming revenue has shifted there. Second, a continuing labor shortage in Macau may delay the company's recently approved resort on Cotai.
The move of gaming revenue to Cotai has been the biggest reason for Melco Crown and Las Vegas Sands outperforming Wynn over the past year.
Just because the stock has suffered doesn't mean Wynn is down and out completely. The company had strong revenue growth in 2011 and gross margin that was only beaten by Las Vegas Sands.
2011 Revenue Growth
2011 EBITDA Margin
|Las Vegas Sands||37.3%||37.5%||11.0||15.2|
Note: MGM 2011 results include consolidated Macau operations.
An enterprise value/EBITDA under 10 also gives shares a reasonable valuation, although it isn't the best in the industry.
Right now there is a lot of negativity priced into the stock, and I think some of that will fade away eventually. The opening of Sands Cotai Central will probably keep some visitors away from the Macau Peninsula for some time, but I don't expect growth to stop for Wynn in Macau. The negative growth the company felt in Las Vegas in the first quarter also isn't going to last as the city slowly returns to form.
Long term, the company is building a property on Cotai that will drive growth if you can wait for the resort to be completed.
I think that Wynn and other gaming stocks have fallen too far in the last month, and I've become a buyer of the industry. Last week I bought both Wynn and Melco Crown, so when I say that Wynn is a buy, my money is where my mouth is. Your risk tolerance should determine which gaming stock is for you, but for those with the highest risk tolerance, Wynn is a solid pick right now.